Since the last few weeks, Biyani has been making a whistle-stop tour across most of the 110 cities where the retail chain has a presence.Kala Vijayraghavan&Sagar Malviya | ET Bureau | November 07, 2015, 08:32 IST

FILE PHOTO: Since the last few weeks, Biyani has been making a whistle-stop tour across most of the 110 cities where the retail chain has a presence.MUMBAI: After nearly 15 years of deliberately giving its supermarket an inferior look to make them resemble a market place, retail baron Kishore Biyani’s Future Group has launched a 'Gen Next' Big Bazaar format to attract upwardly mobile young consumers.

Apart from opening the new format stores to test the market initially, Future Group will also convert few of its existing Big Bazaar stores to Gen Next model that will stock premium merchandise across categories ranging from food to fashion to woo younger customers who now comprise almost one-third of all customer walk-ins.

So, is the move triggered by the new-age online grocers’ fast gaining acceptance among young consumers? Biyani vehemently denies it. In fact, the Future Group founder and CEO prophecies the death of ecommerce grocery players in the next few years. “None of the existing online grocers will survive and will shut shop one after another. Their model doesn't make economic sense at all,” he said.

Biyani said online players will have to add value and reinvent their business model to survive. “Their current format looks difficult, given its low margin business and the cost of business is high. This way, they can't make any economic activity prosper,” he said. LocalBanya, a Mumbai-based online supermarket launched in 2012, last month suspended its operations and reportedly asked almost 40% of its employees to quit. The Rs 18,000-crore Future Group has been re-strategising to upgrade consumers towards higher margin merchandise portfolio that in turn helps perk up profit margins since the last few quarters. Its premium format FoodHall is already a profitable venture five years after opening its first store.

“With FoodHall, Biyani tasted success and realised that how merchandising can attract a new set of consumers seeking premium purchasing opportunities and thereby help enrich business margins,” said Bijou Kurien, board member at LVMH-backed private equity firm L Capital Asia and former chief executive, lifestyle, at Reliance Retail. The company is trying many firsts in its Gen Next format. For instance, the new stores will have segments such as live non-vegetarian section, something that its Marwari promoter hadn't tried before.

Younger customers now comprise almost one-third of customer walk-ins, or over 225 million customers every year, compared to less than a quarter two years ago. Overall, footfalls have increased by 15% across the chain. This is reflecting in numbers too. Future Retail reported second consecutive quarter of double digit same-store sales growth year on year in the value retail format at 10.4% for the quarter ended September, helped by higher promotions. Its gross margins have grown by 400 basis points in past two years and operating margins are above 10%, compared to 7.7% a year ago. Future Retail posted an operating profit of Rs 294 crore, the highest for any quarter in several years.

Future Retail is in the process of merging the operations of its 200 Big Bazaar stores with Bharti Retail's 216 stores that it acquired. Analysts say it will make a more lucrative retail player. “Presence across India with 570 stores will aid omni-channel strategy making logistics easier and cost efficient,” said Abneesh Roy, associate director at Edelweiss Capital said.

“There will be no pressure to monetise non-core assets such as insurance, supply chain, stake in other group companies, which have started giving returns now,” he added.

Since the last few weeks, Biyani has been making a whistle-stop tour across most of the 110 cities where the retail chain has a presence, meeting store managers and employees, encouraging them to bring in fresh energy to complement the new design and merchandise within the stores.

All this as part of his broad vision: By 2020, create a one-crore customer base who shop for more than Rs 1 lakh each, across retail formats, to triple sales at Rs 1 lakh crore. While Biyani has predicted death for online grocers he is upbeat about his firm’s ecommerce plans. “We will run an omni-channel programme for E-Zone starting January 1, 2016, which will earn Rs 300 crore in just three days,” he said. Future Group, which has also partnered Amazon to sell its mostly exclusive lines online, has been investing on brand building too, roping in stars like Katrina Kaif, Varun Dhawan, Shikhar Dhawan and Femina Miss India winners to create a new Fashion at Big Bazaar or FBB to sell fashion merchandise.